A generalized strategy of ‘mission hedging’: investing in ‘evil’ to do more good

A gen­er­al­ized strat­egy of ‘mis­sion hedg­ing’: in­vest­ing in ‘evil’ to do more good

Hauke Hille­brandt [1]

Ver­sion from: 18/​02/​2018


By read­ing this ma­te­rial, you ac­knowl­edge, un­der­stand and ac­cept the fol­low­ing:

This ma­te­rial has been pre­pared by Hauke Hille­brandt (“Hauke Hille­brandt”). This ma­te­rial is sub­ject to change with­out no­tice. This doc­u­ment is for in­for­ma­tion and illus­tra­tive pur­poses only. It is not, and should not be re­garded as “in­vest­ment ad­vice” or as a “recom­men­da­tion” re­gard­ing a course of ac­tion, in­clud­ing with­out limi­ta­tion as those terms are used in any ap­pli­ca­ble law or reg­u­la­tion. This in­for­ma­tion is pro­vided with the un­der­stand­ing that with re­spect to the ma­te­rial pro­vided herein (i) Hauke Hille­brandt is not act­ing in a fi­du­ciary or ad­vi­sory ca­pac­ity un­der any con­tract with you, or any ap­pli­ca­ble law or reg­u­la­tion, (ii) that you will make your own in­de­pen­dent de­ci­sion with re­spect to any course of ac­tion in con­nec­tion here­with, as to whether such course of ac­tion is ap­pro­pri­ate or proper based on your own judg­ment and your spe­cific cir­cum­stances and ob­jec­tives, (iii) that you are ca­pa­ble of un­der­stand­ing and as­sess­ing the mer­its of a course of ac­tion and eval­u­at­ing in­vest­ment risks in­de­pen­dently. Hauke Hille­brandt does not pur­port to and does not, in any fash­ion, provide tax, ac­count­ing, ac­tu­ar­ial, record­keep­ing, le­gal, bro­ker/​dealer or any re­lated ser­vices. You should con­sult your ad­vi­sors with re­spect to these ar­eas and the ma­te­rial pre­sented herein. You may not rely on the ma­te­rial con­tained herein. Hauke Hille­brandt shall not have any li­a­bil­ity for any dam­ages of any kind what­so­ever re­lat­ing to this ma­te­rial. This ma­te­rial is be­ing pro­vided to you at no cost and any fees paid by you to Hauke Hille­brandt are solely for the pro­vi­sion of in­vest­ment man­age­ment ser­vices pur­suant to a writ­ten agree­ment. All of the fore­go­ing state­ments ap­ply re­gard­less of (i) whether you now cur­rently or may in the fu­ture be­come a client of Hauke Hille­brandt and (ii) the terms con­tained in any ap­pli­ca­ble in­vest­ment man­age­ment agree­ment or similar con­tract be­tween you and Hauke Hille­brandt.


Thanks to Ben Todd, Kit Har­ris, Alexan­der Gor­don Brown, and James Snow­den for helpful dis­cus­sion on this manuscript. Any mis­takes are my own.

Table of contents

Dis­claimer 1

Ac­knowl­edg­ments 2

Video ab­stract 4

In­tro­duc­tion to “Mis­sion Hedg­ing” 4

Con­di­tions for mis­sion hedg­ing to be op­ti­mal 7

Mar­kets must be effi­cient 7

In­vest­ment must be in en­tities that cause the bad ac­tivity and not merely co­vary 8

Cor­po­ra­tion that one in­vests in must not them­selves hedge against risks ex­ces­sively 8

Mis­sion hedg­ing might work well for ex­treme risks 9

Mis­sion hedg­ing might be non triv­ial in prac­tise 9

Ex­ten­sion of the strat­egy to share­holder ac­tivism 9

A mis­sion hedg­ing col­lec­tive might bring an harm­ful in­dus­try to its knees 9

Share­holder ac­tivism and in­side in­for­ma­tion 11

Ap­pli­ca­tions for re­source al­lo­ca­tion be­tween differ­ent causes 11

In­ter­na­tional or­gani­sa­tions: ex­am­ple of the In­ter­na­tional Mone­tary Fund 12

Ap­pli­ca­tions out­side of in­vest­ment 13

Ca­reer choice 13

Poli­ti­cal dona­tions 14

Re­tire­ment sav­ing and hedg­ing against un­em­ploy­ment in ‘earn­ing to give’ 14

Limi­ta­tions 15

Other quick thoughts 16

Video abstract


Use­ful in­tro­duc­tory read­ing to un­der­stand effi­cient mar­kets and investing

In­tro­duc­tion to “Mis­sion Hedg­ing”

How should a foun­da­tion whose only mis­sion is to pre­vent dan­ger­ous cli­mate change in­vest their en­dow­ment? Sur­pris­ingly, in or­der to max­i­mize ex­pected util­ity, it might use ‘mis­sion hedg­ing’ in­vest­ment prin­ci­ples and in­vest in fos­sil fuel stocks. This way it has more money to give to or­gani­sa­tions that com­bat cli­mate change when more fos­sil fuels are burned, fos­sil fuel stocks go up and cli­mate change will get par­tic­u­larly bad. When fewer fos­sil fuels are burnt and fos­sil fuels stocks go down—the foun­da­tion will have less money, but it does not need the money as much. Un­der cer­tain con­di­tions the mis­sion hedg­ing in­vest­ment strat­egy max­i­mizes ex­pected util­ity.

So gen­er­ally, if you want to do more good, should you in­vest in ‘evil’ cor­po­ra­tions with nega­tive ex­ter­nal­ities? Cor­po­ra­tions that cause harm such as those that sell arms, to­bacco, fac­tory farmed meat, fos­sil fuels, or ad­vance po­ten­tially dan­ger­ous new tech­nol­ogy? Here I ar­gue that, though per­haps coun­ter­in­tu­itively, that this might be the op­ti­mal in­vest­ment strat­egy.

In this note, I ex­tend the spe­cial case of an in­vest­ment strat­egy for foun­da­tion en­dow­ments called ‘Mis­sion hedg­ing’, origi­nally in­tro­duced by Brigitte Roth Tran. The gen­er­al­ized strat­egy pro­posed here sug­gests that, un­der cer­tain con­di­tions, agents should in­vest re­sources in en­tities that cause ac­tivity they want to pre­vent. I will fo­cus only on the con­cep­tual ex­ten­sion of mis­sion hedg­ing here, but more tech­ni­cal de­tails, caveat­ing and math­e­mat­i­cal for­mal­ism can be found in Roth Trans origi­nal pa­per, all of which are also rele­vant to the more gen­er­al­ized the­ory.

Roth Tran [2] sum­ma­rizes the ba­sic me­chan­ics of mis­sion hedg­ing for foun­da­tions as fol­lows:

“”[M]is­sion hedg­ing,” [is] a new strat­egy in which the en­dow­ment “dou­bles down,” skew­ing in­vest­ments to­ward firms it op­poses. If in­creased ob­jec­tion­able ac­tivi­ties co­in­cide with both higher firm re­turns and greater foun­da­tion rev­enue needs (with which to coun­ter­act the ob­jec­tion­able ac­tivi­ties), then the foun­da­tion can al­ign fund­ing availa­bil­ity with need by in­creas­ing ex­po­sure to ob­jec­tion­able firms be­yond that of a typ­i­cal port­fo­lio. In­creas­ing in­vest­ment in ob­jec­tion­able firms cre­ates a hedge around the foun­da­tion’s mis­sion, max­i­miz­ing ex­pected util­ity.”

In other words, the ba­sic idea is that, sur­pris­ingly, it might be op­ti­mal for an al­tru­ist whose mis­sion is to com­bat global poverty, fac­tory farm­ing, mass un­em­ploy­ment, or ex­is­ten­tial risks from ar­tifi­cial in­tel­li­gence, to in­vest in stocks of cor­po­ra­tions that might make the prob­lem worse and then give the prof­its to or­gani­sa­tions that will coun­ter­act the prob­lem.

For ex­am­ple, it might be a good strat­egy for donors or even other en­tities such as gov­ern­men­tal or­gani­sa­tions that are con­cerned with global health to in­vest in to­bacco cor­po­ra­tions and then give the prof­its to to­bacco con­trol lob­by­ing efforts. Another ex­am­ple might be that an­i­mal welfare ad­vo­cates should in­vest in com­pa­nies en­gaged in fac­tory farm­ing such as those in meat pack­ing in­dus­try, and then use the prof­its to in­vest in or­gani­sa­tions that work to cre­ate lab grown meat. A fi­nal ex­am­ple: it might be op­ti­mal for donors who think that emerg­ing risks from ar­tifi­cial in­tel­li­gence is a press­ing cause to in­vest in the tech­nol­ogy com­pa­nies that might speed up such dan­ger­ous tech­nolo­gies, and then donate the prof­its to or­gani­sa­tions that work on guard­ing against such risks.

The ba­sic me­chan­ics of the mis­sion hedg­ing in­vest­ment strat­egy are the fol­low­ing: when a bad in­dus­try does well, you as an in­vestor can use your in­creased prof­its or div­i­dends to coun­ter­act this trend. In other words, the more harm the in­dus­try does, e.g. in­creases CO2 emis­sions, sells more meat, or is on more on track to cre­ate tech­nol­ogy that de­stroys jobs or is oth­er­wise dan­ger­ous, the more you will profit and you can then use these prof­its to pre­vent the in­dus­try from do­ing bad things (po­ten­tially through dona­tions or grants). If the bad in­dus­try is not do­ing well, then you will not profit as much, but you don’t need to donate as much any­way be­cause there is less bad ac­tivity. So ei­ther way, you will always donate a more op­ti­mal amount of money in pro­por­tion to the bad ac­tivity level.

Here is a sim­ple toy model that illus­trates the cli­mate change case.

First con­sider, the fol­low­ing figure (taken from[3]) that shows that there is un­cer­tainty about the world’s emis­sion path­way and how how high warm­ing will be above pre in­dus­trial lev­els:

Now con­sider how the oil price will de­velop cor­re­spond­ingly:

Now con­sider the fol­low­ing toy model (The spread­sheet can be found here):

As you can see a $1 mil­lion en­dow­ment will reap differ­ent prof­its if mis­sion hedg­ing in­vest­ment prin­ci­ples are used un­der two differ­ent warm­ing sce­nar­ios. If warm­ing is rel­a­tively mild, at e.g. 1 de­grees cel­sius above prein­dus­trial lev­els, that means that fewer fos­sil fuels were burned, and fos­sil fuel stock didn’t do as well: the re­sult­ing prof­its are be­low mar­ket rate re­turns at a mea­ger $10,000. How­ever, in the sec­ond sce­nario with 4 de­grees of warm­ing above prein­dus­trial lev­els, it’s likely that more fos­sil fuel were burned than ex­pected and fos­sil fuel stocks did very well. The div­i­dends in this case might be above mar­ket rate re­turns at $60,000. Note that the av­er­age re­turn with mis­sion hedg­ing ($35,000) of these equally prob­a­ble sce­nar­ios (p=0.5), is lower than the av­er­age fi­nan­cial re­turns if no mis­sion hedg­ing is used ($50,000) be­cause the port­fo­lio is op­ti­mally di­ver­sified (his­tor­i­cally av­er­age rate of re­turn is about 5% [4]).

Now note how the cost-effec­tive­ness of cli­mate change in­ter­ven­tions (e.g. sav­ing the rain­for­est, geo­eng­ineer­ing,lob­by­ing for more re­new­able en­ergy R&D is differ­ent in the two warm­ing sce­nar­ios): if warm­ing is rel­a­tively mild then the cost-effec­tive­ness of the av­er­age cli­mate change in­ter­ven­tion won’t be as high (here I as­sign 10 QALYs per $1000 spent). How­ever, if warm­ing gets re­ally se­vere as in the 4 de­grees warm­ing sce­nario, then the cost-effec­tive­ness of cli­mate change in­ter­ven­tions might be much higher at 100 QALYs per $1000 spent. In this case the av­er­age num­ber of QALYs gained un­der mis­sion hedg­ing is higher (3,050 QALYs gained) than the num­ber of QALYs gained with­out mis­sion hedg­ing (2,750).

How­ever, mis­sion hedg­ing is not nec­es­sar­ily limited to in­vest­ing en­dow­ments on the stock mar­ket. Some­one in­ter­ested in ca­reer choice, poli­ti­cal cam­paign con­tri­bu­tions, or bud­get al­lo­ca­tion amongst differ­ent parts of gov­ern­ment might also be ad­vised to use mis­sion hedg­ing. For in­stance, some­one wor­ried about the risks as­so­ci­ated with a, say, au­thor­i­tar­ian lean­ing poli­ti­cal party com­ing into power or a cor­po­ra­tion hav­ing large nega­tive ex­ter­nal­ities and out­sized reg­u­la­tory cap­ture, might in­vest ca­reer cap­i­tal into that said poli­ti­cal party or com­pany and later use it pre­vent the bad ac­tivity.

I list more ex­am­ples in the table 1 be­low.

Table 1: Ex­am­ples of mis­sion hedg­ing in­vest­ments for differ­ent cause ar­eas or mis­sions an al­tru­is­tic agent might pursue

Mis­sion hedg­ing and re­lated con­cepts might also be a use­ful tool to provide par­tial an­swers to the fol­low­ing ques­tions:

  • When should one in­vest to tackle a cer­tain prob­lem? Now or later?

  • How much of its en­dow­ment should a foun­da­tion spend within a given year? [5]

  • How much should a gov­ern­ment agency or in­ter­na­tional or­gani­sa­tion tasked with a cer­tain mis­sion spend within a given time frame?

  • What should we do with re­gards to un­cer­tainty in the timeline of ex­is­ten­tial risks from cli­mate change or ar­tifi­cial in­tel­li­gence? [6]

  • How should you al­lo­cate your re­sources be­tween differ­ent mis­sion ob­jec­tives or causes due to un­cer­tainty of whether some ob­jec­tives or causes are more im­por­tant than oth­ers?

Con­di­tions for mis­sion hedg­ing to be optimal

Mar­kets must be efficient

There are some ob­vi­ous ob­jec­tions to this strat­egy. In­tu­itively, you might think it’s bet­ter to di­vest from com­pa­nies that do things that you think are mak­ing the prob­lem worse, be­cause you in­crease the cap­i­tal sup­ply to a com­pany that will then cre­ate more sup­ply of the so­cially harm­ful good. In con­tradis­tinc­tion to di­vest­ment, the ‘mis­sion hedg­ing’ strat­egy ex­plic­itly asks you to ac­tu­ally dou­ble down on in­vest­ments in com­pa­nies you be­lieve to be harm­ful. How­ever, di­vest­ment is un­likely to af­fect the stock price or the cash flow of the tar­geted com­pa­nies at all.

This ar­gu­ment has been made el­se­where in much de­tail 2,[7]. In brief, if you di­vest from say, fos­sil fuel for eth­i­cal rea­sons, then an in­vestor who doesn’t care about cli­mate change will hap­pily buy the now un­der­val­ued fos­sil fuel stocks. She might do so by sel­l­ing her stocks of so­cially neu­tral com­pa­nies (e.g. med­i­cal tech­nol­ogy cor­po­ra­tions) that you now need to buy be­cause you don’t want to in­vest in fos­sil fuels. The end re­sult is no differ­ence in the al­lo­ca­tion in cap­i­tal or stock price.

Thus, in effi­cient mar­kets, such as the stock mar­ket, no mat­ter how you in­vest, the com­pa­nies and their share prices will likely not be af­fected sub­stan­tially. In­ter­est­ingly, the di­vest­ment strat­egy, which has be­come pop­u­lar in the con­text cli­mate change ad­vo­cacy, is now also adopted in other ar­eas such as open sci­ence, where so­cially re­spon­si­ble in­vest­ment man­agers di­vest from pharma cor­po­ra­tions which do not pub­lish all their find­ings [8]. Thus, it might be in­creas­ingly im­por­tant to pre­vent at­ten­tion and re­sources to be di­verted to in­effec­tive di­vest­ment strate­gies.

In any case, the first con­di­tion that is cru­cially im­por­tant for any area where mis­sion hedg­ing is suc­cess­fully ap­plied: the mar­ket, con­strued in the broad­est sense, that you are in­vest­ing in must be effi­cient or else a mis­sion hedg­ing in­vestor risks do­ing harm in­stead of good.

So cru­cially, mis­sion hedg­ing will back­fire if mar­kets are in­effi­cient and re­sources such as time, money and effort would coun­ter­fac­tu­ally en­able bad ac­tivity. For ex­am­ple, out­side of the stock mar­ket where mar­kets are less effi­cient it is eas­ier to cause ac­tu­ally cause bad ac­tivity, by, for in­stance, pro­vid­ing seed fund­ing for a startup to cre­ate a new harm­ful to­bacco product . Un­like on the stock mar­ket, in this ex­am­ple, the seed in­vest­ment might not have oc­curred oth­er­wise and harm is caused by the in­vestor through the in­ven­tion of tech­nol­ogy that might oth­er­wise not have been in­vented.

In­vest­ment must be in en­tities that cause the bad ac­tivity and not merely covary

The sec­ond con­di­tion is that, ideally, your in­vest­ment should not just co­vary with the bad ac­tivity but ac­tu­ally be caus­ing the bad ac­tivity[9]. For ex­am­ple, one might have the in­tu­ition that an or­gani­sa­tion tasked with en­sur­ing global health such as the WHO, should in­vest their en­dow­ment in the med­i­cal de­vice in­dus­try: as global health gets worse, more med­i­cal de­vices will be sold and so the WHO will profit, which gives them more re­sources to im­prove global health. As global health gets bet­ter, fewer med­i­cal de­vices are sold and so the WHO does not need as many re­sources to fulfill its mis­sion of en­sur­ing good global health. How­ever, med­i­cal de­vices do not cause global ill-health. Even though med­i­cal de­vice sales and the stock prices of cor­po­ra­tions sel­l­ing these de­vices should of­ten co­vary, they are merely cor­re­lated. One can imag­ine cases where med­i­cal de­vices sell poorly, and yet global health is poor, or cases where med­i­cal de­vices sell very well, but global health is good. This is why it’s bet­ter to in­vest in cor­po­ra­tions that di­rectly cause the bad ac­tivity, in this case to­bacco. How­ever, a port­fo­lio that strongly co­varies with the bad ac­tivity level might still be good and have fewer rep­u­ta­tional risks.

Cor­po­ra­tion that one in­vests in must not them­selves hedge against risks excessively

Cor­po­ra­tions of­ten hedge against their own mis­sion risks by in­vest­ing in things that could hurt their prof­its and they need to re­port the use of deriva­tives in their fi­nan­cial state­ments, in­clud­ing their pur­pose and its hedg­ing effec­tive­ness [10]. For in­stance, PHW — a billion-dol­lar Ger­man poul­try com­pany — re­cently in­vested in a lab grown meat startup and Tyson, a big meat pack­ing cor­po­ra­tion in­vests in plant-based burg­ers[11]. Similarly, oil com­pa­nies of­ten in­vest in so­lar. If these com­pa­nies hedge to the ex­tent that an in­vest­ment in them just rep­re­sents in­vest­ing in a di­ver­sified port­fo­lio of the whole in­dus­try (e.g. the food in­dus­try or the en­ergy in­dus­try), then mis­sion hedg­ing will not work. How­ever, it seems that in the cases above, the util­ity max­i­miz­ing effect will sim­ply be diluted.

Mis­sion hedg­ing might work well for ex­treme risks

The mis­sion hedg­ing in­vest­ment prin­ci­ple might also work for risks from emerg­ing tech­nol­ogy such ar­tifi­cial in­tel­li­gence, es­pe­cially in a slow take­off sce­nario[12] . How­ever, note that the case has been made that hedg­ing against ex­treme risks might be difficult (“You can­not short the apoc­a­lypse”[13]).

Also, the re­la­tion­ship be­tween the stock price of the ob­jec­tion­able as­set class and the cost-effec­tive­ness of the in­ter­ven­tion might be non­lin­ear. For in­stance, it might have an in­verted U shape, in cli­mate change sce­nario where at first mis­sion hedg­ing ap­plies, the stock price of fos­sil fuel goes up, and the cost-effec­tive­ness of in­ter­ven­tions goes up, but then the stock price might go up even fur­ther, yet the cost-effec­tive­ness of do­ing some­thing against cli­mate change might de­crease, be­cause it is too late to do some­thing against cli­mate change.

More com­pli­cated fi­nan­cial prod­ucts might be used to hedge against a risk such as stran­gles, which are op­tion deriva­tives that al­lows the holder to profit based on how much the price of the un­der­ly­ing se­cu­rity moves, with rel­a­tively min­i­mal ex­po­sure to the di­rec­tion of price move­ment.

Mis­sion hedg­ing might be non triv­ial in practise

It might be difficult to find the right cor­po­ra­tions to in­vest in prac­tise. Hedg­ing is a re­search field within fi­nance that is ex­ten­sively stud­ied: for in­stance, there is still ac­tive re­search around what the best hedge against in­fla­tion is [14]. It might be non-triv­ial to figure out how to prop­erly hedge against mis­sion risks.

Ex­ten­sion of the strat­egy to share­holder activism

A mis­sion hedg­ing col­lec­tive might bring an harm­ful in­dus­try to its knees

In­ter­est­ingly, un­like with di­vest­ment strate­gies where po­ten­tially a large ma­jor­ity of to­tal global cap­i­tal would be needed to di­vest from com­pa­nies, col­lec­tive ac­tion of a much smaller per­centage of the mar­ket us­ing the mis­sion hedg­ing strat­egy could in some cases ac­tu­ally hurt harm­ful in­dus­tries in terms of their stock price.

A big in­vestor or a like-minded, value al­igned in­vestor col­lec­tive could use mis­sion hedg­ing in­stead of di­vest­ment to dam­age in­dus­tries that cause bad ac­tivity. Re­call that if a harm­ful in­dus­try does well the in­vestor col­lec­tive (or large foun­da­tion en­dow­ment) will profit rel­a­tively more and can ramp up their anti-in­dus­try ac­tivi­ties (such as lob­by­ing against it). If an in­vestor col­lec­tive and their ac­tivity be­came widely known, such that the mar­ket would an­ti­ci­pate its ac­tions, stock prices would go down in­evitably. Stock prices would not even go up in the face of ‘pos­i­tive shocks’ in that in­dus­try. Why is that? Imag­ine a new oil reser­voir be­ing dis­cov­ered. Nor­mally, the mar­ket would re­spond by buy­ing more shares in the com­pany that has dis­cov­ered this reser­voir and the price of shares would go up. How­ever, if the mar­ket knows that there’s an in­vestor col­lec­tive that will profit from this and ac­tu­ally use these prof­its to fight the in­dus­try from mak­ing fur­ther prof­its of fos­sil fuels, they might not in­vest de­spite the pos­i­tive shock. There would be nowhere for the stock price to go but down. The rest of the mar­ket might di­vest from in­dus­tries that are known to be un­der ‘at­tack’ of such a col­lec­tive.

How­ever, it is im­por­tant to care­fully con­sider whether the com­bined cap­i­tal of such a col­lec­tive is re­ally large enough to af­fect the in­dus­try and are not dwar­fed by counter lob­by­ing ac­tivi­ties of the harm­ful cor­po­ra­tions that are try­ing to max­i­mize share­holder value of so­cially neu­tral in­vestors.

By defi­ni­tion, ‘big X- in­dus­tries’, i.e. Big Oil, Big Pharma, Big Tobacco etc., that have nega­tive ex­ter­nal­ities make billions in prof­its. How­ever, one can use a bit of game the­ory in or­der to not need to take on the en­tire in­dus­try: a mis­sion hedg­ing in­vestor (col­lec­tive) could pub­li­cally com­mit to always take on the cur­rent mar­ket leader with in­vest­ment and lob­by­ing and thus threaten a larger share of the mar­ket at once. This is similar to the strate­gies em­ployed by some an­i­mal ad­vo­cacy groups, which de­clare that they will not stop putting pub­lic pres­sure on a fast food chain un­til they only use cage free eggs in their prod­ucts[15].

In any case, the size of the mis­sion hedg­ing col­lec­tive would have to be much smaller to drive down stock prices than the size of a di­vest­ment col­lec­tive. This is be­cause a small per­centage of so­cially neu­tral in­vestors with ac­cess to cap­i­tal could always buy up sin stocks by us­ing lev­er­age, even if trillions of dol­lars of as­sets un­der man­age­ment have already been di­vested from fos­sil fuel stocks[16]. They can do so with be­cause they have the prospect of slightly higher than mar­ket rate re­turns due the ex­ploita­tion of in­vestors who use the di­vest­ment strat­egy and they can bor­row for less than the mar­ket rate re­turns, thus clear­ing the mar­ket.

Another ex­am­ple: gov­ern­ments could use a fixed per­centage of their to­bacco tax rev­enue to coun­ter­act smok­ing (e.g. by run­ning pub­lic health cam­paigns). This would make the in­dus­try less lu­cra­tive for in­vestors, be­cause the in­dus­try is work­ing against it­self—the bet­ter the com­pa­nies do in terms of sel­l­ing to­bacco, the higher the tax re­ceipts the gov­ern­ment can use to ed­u­cate smok­ers to quit.

One last ex­am­ple, one could buy life in­surance for poli­ti­cal dis­si­dents in au­thor­i­tar­ian regimes that re­ceive death threats and an­nounce that one would donate the pro­ceeds to efforts to fight the regime.

One way to im­ple­ment this mechanism would be us­ing self-ex­e­cut­ing smart con­tracts on the blockchain, that would pay out in these cases.

Share­holder ac­tivism and in­side information

When in­vest­ing in a com­pany that causes bad ac­tivity one can also use share­holder ac­tivism and try to re­duce bad ac­tivity from within the in­dus­try. This is an­other ad­van­tage as com­pared to di­vest­ment.

Ap­pli­ca­tions for re­source al­lo­ca­tion be­tween differ­ent causes

Some foun­da­tions have try­ing to re­duce some un­cer­tainty on how to al­lo­cate re­sources amongst differ­ent causes to differ­ent buck­ets [17]. In­vest­ment us­ing mis­sion hedg­ing might also be a way to op­ti­mize re­source al­lo­ca­tion be­tween differ­ent mis­sions or causes that an al­tru­ist thinks are likely to be im­por­tant.

Imag­ine you want to make your dona­tions or de­cide on your foun­da­tions strat­egy on how much you’re go­ing to spend on differ­ent causes. Let’s say you de­cide based on moral and cost-effec­tive­ness grounds that you will al­lo­cate 60% of your re­sources to an­i­mal welfare causes, 30% to try to pre­vent risks from ad­vanced tech­nol­ogy and 10% to global health at the end of the year.

You might not want to sim­ply al­lo­cate the prof­its of your en­dow­ment by al­lo­cat­ing, 60% to an­i­mal welfare causes, 30% to tech­nolog­i­cal risks and 10% global health, based on how press­ing and im­por­tant each of the causes you think are. Rather, you could use the wis­dom of the crowds (here the crowd is the mar­ket) to fi­nesse those es­ti­mates and de­cide at the be­gin­ning of the year to in­vest 60% in meat in­dus­try stocks, 30% in tech­nol­ogy stock, and 10% in to­bacco stock. At the end of the year you al­lo­cate the prof­its or div­i­dends to or­gani­sa­tions in the re­spec­tive cause ar­eas. Then, rel­a­tive to how well the differ­ent in­dus­tries do that year, you will as­sign rel­a­tively more or less money to each cause (e.g. be­cause to­bacco stocks did very well and you have rel­a­tively more money in the global health port­fo­lio, you end up with 15% of your over­all dona­tions go­ing to to­bacco con­trol and be­cause tech­nol­ogy prof­its were poor this year, you only donate 20% of your over­all dona­tion to non­prof­its work­ing on tech­nolog­i­cal risk pre­ven­tion).

Why is this be a more op­ti­mal strat­egy? There are two ma­jor rea­sons:

  1. There are also diminish­ing marginal re­turns to in­vest­ing into a prob­lem that be­comes smaller and thus the cost-effec­tive­ness of one’s efforts to tackle a prob­lem be­comes less favourable. Take the global health ex­am­ple from above: as global health be­comes bet­ter and there are fewer smok­ers, to­bacco con­trol efforts will be less effec­tive at try­ing to get the last smok­ers to quit (e.g mass me­dia in­ter­ven­tions will not be as effec­tive). Fewer re­sources should be in­vested rel­a­tive to other causes or mis­sion ob­jec­tive an in­vestor might have.

  2. It re­duces the un­cer­tainty about the (fu­ture) scale of the prob­lem by tap­ping into the ‘wis­dom of the mar­kets’. Mis­sion hedg­ing is the­o­ret­i­cally equiv­a­lent to us­ing a very effi­cient pre­dic­tion mar­ket (e.g. the stock mar­ket) to in­form your de­ci­sions. Given that an agent might be un­cer­tain about the (fu­ture) scale of the prob­lem, us­ing the stock mar­ket as a prior might shine light on this is­sue. How­ever, the stock mar­ket is not a perfect pre­dic­tion de­vice for cost-effec­tive­ness of an in­ter­ven­tion and can only serve as prior or pa­ram­e­ter es­ti­mate in one’s model of the cost-effec­tive­ness of an intervention

This strat­egy can be added on top off other pri­ori­ti­za­tion con­sid­er­a­tions (e.g. sce­nario analy­ses as de­scribed in[18]).

Mis­sion hedg­ing might not only work for en­dow­ments of foun­da­tions, but also for bud­gets of big in­ter­na­tional or­gani­sa­tions or gov­ern­ment de­part­ments with mul­ti­ple man­dates, or even with gov­ern­ment bud­gets. As a foun­da­tion one could also offer this as a ‘bank­ing ser­vice’ where one pays the grant into an ac­count that is in­vested ac­cord­ing to mis­sion hedg­ing prin­ci­ples and the char­ity can spend based on this.

In­ter­na­tional or­gani­sa­tions: ex­am­ple of the In­ter­na­tional Mone­tary Fund

It might be good to con­vince not only foun­da­tion to skew their en­dow­ments, but also con­vince in­ter­na­tional in­sti­tu­tions or gov­ern­ments to use mis­sion hedg­ing for their ‘en­dow­ments’ or ac­counts.

Con­sider for in­stance the In­ter­na­tional Mone­tary Fund (IMF). The IMFs stated mis­sion is “to foster global mon­e­tary co­op­er­a­tion, se­cure fi­nan­cial sta­bil­ity, fa­cil­i­tate in­ter­na­tional trade, pro­mote high em­ploy­ment and sus­tain­able eco­nomic growth, and re­duce poverty around the world.” [19].

The IMF has billions in as­sets[20]. How­ever, even though the IMF di­ver­sifies its as­sets by ge­og­ra­phy and as­set classes against mar­ket risks, and hedges against for­eign ex­change volatility etc., it seems to to not hedge against mis­sion risks.

The IMF could con­sider skew­ing their port­fo­lio to­wards tech­nol­ogy com­pa­nies which have been sug­gested to cre­ate tech­nolog­i­cal un­em­ploy­ment, in or­der to have more money so that it has more re­sources to en­sure its mis­sion of pro­mot­ing high em­ploy­ment in case tech­nol­ogy com­pa­nies do well.

There ap­pear to be many such in­ter­na­tional funds which might want to in­vest their en­dow­ments us­ing mis­sion hedg­ing prin­ci­ples (e.g. an­other is the Strate­gic Cli­mate Fund [21]).

Ap­pli­ca­tions out­side of investment

Ca­reer choice

Mis­sion hedg­ing might also be a strat­egy for ca­reer choice, where time is in­vested to hedge against risks that threaten one’s mis­sion or cause. For in­stance, one might be­lieve that to­bacco com­pa­nies are par­tic­u­larly harm­ful, but choose to work at a to­bacco cor­po­ra­tion. After in­vest­ing ca­reer cap­i­tal one can use this to work against the harm­ful cor­po­ra­tion in case it be­comes par­tic­u­larly harm­ful. This might oc­cur in the form lob­by­ing for more so­cially re­spon­si­ble be­havi­our within the com­pany, whistle­blow­ing, in­dus­trial sab­o­tage or earn­ing to give with higher wages or equity in a harm­ful in­dus­try. Po­ten­tially this be­havi­our might be par­tic­u­larly effec­tive if the com­pany is on the verge of perform­ing a par­tic­u­larly harm­ful ac­tion that other com­peti­tors would likely not perform. Note that this re­lated, but slightly differ­ent and ex­tended ar­gu­ment from the clas­si­cal ‘earn­ing to give in so­cially harm­ful in­dus­tries’[22] and not sim­ply an ar­gu­ment for high re­place­abil­ity.

As men­tioned above, whether mis­sion hedg­ing will work when it comes to ca­reers will cru­cially de­pend on whether the job mar­ket is effi­cient in the sec­tor. Big pub­li­cly traded com­pany or big bank has many job ap­pli­cants and when one takes a job with them, one only re­places a com­peti­tor who is only marginally less ca­pa­ble worker from work­ing at the com­pany by tak­ing a job in a harm­ful in­dus­try (this is of course not say that all work at big cor­po­ra­tions or in fi­nance is so­cially harm­ful)[23]. How­ever, join­ing a smaller, so­cially harm­ful busi­ness that has a harder time find­ing com­pe­tent work­ers and less effi­cient hiring, might ac­tively cause harm be­cause there is a bet­ter chance that con­tribut­ing to the suc­cess of the busi­ness will cause coun­ter­fac­tual harm over and above what the next can­di­date in line would have caused.

Fi­nally, this strat­egy might be par­tic­u­larly effec­tive when deal­ing with ex­treme, high stakes, low prob­a­bil­ity risks. For in­stance, some­one might have the high­est im­pact in terms of ex­pected value by hav­ing a ca­reer in the mil­i­tary or the se­cret ser­vice. Even though the modal out­come of this ca­reer might not be very im­pact­ful, in the un­likely event of a war, mil­i­tary gov­ern­ment etc., one’s im­pact might be very high. Thus join­ing the mil­i­tary might have the high­est coun­ter­fac­tual im­pact in terms of ex­pected value. His­tor­i­cal anal­y­sis sug­gests that sol­diers have some­times sin­gle hand­edly pre­vented nu­clear war[24]. Another ex­am­ple would be work­ing at a lead­ing ar­tifi­cial in­tel­li­gence com­pany that could cre­ate dan­ger­ous tech­nol­ogy and us­ing whistle­blow­ing when they are on the verge of a break­through.

Poli­ti­cal donations

One could ar­gue that poli­ti­cal dona­tions oc­cur in ‘effi­cient mar­kets’ as well. In the past US elec­tions, there have been cases in which billion­aires donated a few mil­lions, i.e. a tiny frac­tion of their net­worth (0.1% per­cent) to other billion­aires cam­paigns (for in­stance, Peter Thiel donated to Don­ald Trump)[25]. Th­ese billion­aires might have funded their cam­paigns them­selves if it had not been for the dona­tion. In ex­change these billion­aires might have gained poli­ti­cal in­fluence due to their con­tri­bu­tion, which can be used to fur­ther their mis­sion and to coun­ter­act bad ac­tivity from a bad poli­ti­cian, even though coun­ter­fac­tu­ally the dona­tion didn’t have any in­fluence as the poli­ti­cian would have been funded any­way.

Re­tire­ment sav­ing and hedg­ing against un­em­ploy­ment in ‘earn­ing to give’

Some­one who does ‘earn­ing to give’ might want to skew their per­sonal re­tire­ment fund to­wards tech­nol­ogy com­pa­nies, if they feel their job is at risk due to tech­nolog­i­cal un­em­ploy­ment. They might also want to in­vest out­side of the econ­omy they work in [26], in case it does poorly and the per­son do­ing earn­ing to give is un­able to re­lo­cate. They might also want to buy dis­abil­ity in­surance.

It would be in­ter­est­ing to know whether big sovereign wealth fund /​ pen­sion funds such as the Nor­we­gian pen­sion fund already do this (hedge against risks to their econ­omy, tech­nolog­i­cal un­em­ploy­ment, shift­ing de­mo­graph­ics to a pop­u­la­tion with fewer peo­ple in work­ing age). Much thought goes into[27] how to in­vest $25 trillion in pri­vate pen­sions funds in OECD coun­tries[28] in a way that is best for their in­vestors. The an­swer to this ques­tion might elu­ci­date whether this mis­sion hedg­ing strat­egy has flaws, is difficult to im­ple­ment in prac­tise, etc.


In­ter­est­ingly, mis­sion hedg­ing de­cid­edly skews the port­fo­lio away from di­ver­sifi­ca­tion and thus does not max­i­mize risk-ad­justed fi­nan­cial re­turns. Most en­dow­ments are try­ing to max­i­mize fi­nan­cial re­turns, but with mis­sion hedg­ing one moves away from an op­ti­mally di­ver­sified, (pas­sively in­vested) global mar­ket port­fo­lio[29]. Thus, one will likely sac­ri­fice fi­nan­cial re­turns. For a ‘cause neu­tral’ agent, who doesn’t have a mis­sion, favourite cause, or man­date, it might be best to not sac­ri­fice the flex­i­bil­ity of switch­ing causes and rather in­vest purely as to max­i­mize fi­nan­cial re­turns. This is similar to the strat­egy of build­ing up ca­reer cap­i­tal in the face of un­cer­tainty about what the most im­por­tant cause is.

Also, be­cause mis­sion hedg­ing is some­what coun­ter­in­tu­itive and peo­ple might be re­pulsed by be­ing as­so­ci­ated as prof­it­ing from e.g. evil cor­po­ra­tions, there might be rep­u­ta­tional risks as­so­ci­ated with it that need to be fac­tored in. If this is a de­ci­sive fac­tor, then it might be bet­ter to buy stocks that are merely cor­re­late with bad ac­tivity—such as buy­ing stock in the phar­ma­ceu­ti­cal in­dus­try rather than the to­bacco in­dus­try. One could also buy deriva­tives that merely track the stock price, and which would be de facto stocks for all in­tents and pur­poses, but an in­vestor would not ‘own’ part the com­pany.

How­ever, there might be a way of us­ing some up­sides of mis­sion hedg­ing with­out in­vest­ing in what might be seen as morally rep­re­hen­si­ble com­pa­nies. Say your foun­da­tion fo­cuses on two rather than one fo­cus ar­eas (which in it­self might be sub­op­ti­mal[30]). Say area 1 is an­i­mal welfare and area 2 is global poverty. Your prior in­tu­ition is that these ar­eas are equally im­por­tant and you as­sign a 50-50 split of your an­nual dis­burse­ments to these two cause ar­eas. Now, you could in­vest your en­tire en­dow­ment in stock in the de­vel­op­ing world coun­tries where your foun­da­tion sup­ports say cash-trans­fer pro­gram. We will as­sume that cor­po­ra­tions in those coun­try do­ing well causes poverty re­duc­tion and they are not seen as morally rep­re­hen­si­ble. Now, rel­a­tive to how the de­vel­op­ing world stock port­fo­lio does you de­cide to in­vest ex­cess prof­its (over the stan­dard stock mar­ket re­turn) to the other area (here an­i­mal welfare). If the de­vel­op­ing world stock does well, you might not need to in­vest as much in poverty re­duc­tion, and have more funds for the more ne­glected an­i­mal welfare area. If the stock doesn’t do as well, and there are no ex­cess prof­its, it is bet­ter to stick closer to the origi­nal 50-50 split.

Other quick thoughts

  • The pro­cess of hedg­ing might also help to put clar­ify one’s mis­sion it­self. If there would be a lot of re­sis­tance for the IMF to skew their port­fo­lio to­wards tech­nol­ogy com­pa­nies be­cause they state their mis­sion is to keep un­em­ploy­ment low, and the hedge is ac­cepted to work, then maybe the IMF is not re­ally pur­su­ing its mis­sion or man­date. Mis­sion hedg­ing might clar­ify the mis­sion of an or­gani­sa­tion or agent, be­cause one ‘puts their money where their mouth is’.

  • Catas­tro­phe (CAT) bonds are now a $29 billion dol­lar mar­ket, and provide cov­er­age against hur­ri­canes, earth­quakes, and pan­demics [31]. There are new de­vel­op­ments in this area of dis­aster in­surance[32] with de­vel­op­ments such as the cre­ation over the counter catas­tro­phe swaps[33].There is also on­go­ing re­search on cy­ber in­surance and catas­tro­phes on the cy­berspace [34] and on li­a­bil­ity of fu­ture robotics tech­nol­ogy [35]

  • “Bet­ter­ment In­vest­ing just added a no-cost au­to­matic dona­tion fea­ture. Us­ing their ex­ist­ing tax-op­ti­mized sys­tem, they al­low you to donate your most ap­pre­ci­ated shares di­rectly to any of their many con­nected char­i­ties. This gives you the max­i­mum tax de­duc­tion right now, while re­duc­ing your taxes fur­ther when you later with­draw from your ac­count later in life” [36]

  • There are some ar­tifi­cial in­tel­li­gence ETFs[37] that one could look into to hedge against risk from emerg­ing technologies

[1] email: h@uke.pm.

[2] “Divest, Dis­re­gard, or Dou­ble Down? by Brigitte Roth Tran :: SSRN.” 13 Apr. 2017, https://​​pa­pers.ssrn.com/​​sol3/​​pa­pers.cfm?ab­stract_id=2952257. Ac­cessed 2 Jun. 2017.

[3] “Bet­ting on nega­tive emis­sions | Na­ture Cli­mate Change.” 21 Sep. 2014, https://​​www.na­ture.com/​​ar­ti­cles/​​ncli­mate2392. Ac­cessed 20 Feb. 2018.

[4] “What is the av­er­age an­nual re­turn for the S&P 500? | In­vesto­pe­dia.” https://​​www.in­vesto­pe­dia.com/​​ask/​​an­swers/​​042415/​​what-av­er­age-an­nual-re­turn-sp-500.asp. Ac­cessed 20 Feb. 2018.

[5] “Should the Open Philan­thropy Pro­ject be Recom­mend­ing More/​Larger …” 2015. 19 Sep. 2016 <http://​​www.open­philan­thropy.org/​​blog/​​should-open-philan­thropy-pro­ject-be-recom­mend­ing-more­larger-grants>

[6] “What Do We Know about AI Timelines? | Open Philan­thropy Pro­ject.” 2015. 19 Sep. 2016 <http://​​www.open­philan­thropy.org/​​fo­cus/​​global-catas­trophic-risks/​​po­ten­tial-risks-ad­vanced-ar­tifi­cial-in­tel­li­gence/​​ai-timelines>

[7] “How In­vestors Can (and Can’t) Create So­cial Value | Stan­ford So­cial ….” 8 Dec. 2016, https://​​ssir.org/​​up_for_de­bate/​​ar­ti­cle/​​how_in­vestors_can_and_cant_cre­ate_so­cial_value. Ac­cessed 2 Jun. 2017.

[8] “In­vest­ment man­agers back greater trans­parency of clini­cal tri­als | The ….” 23 Jul. 2015, http://​​www.bmj.com/​​con­tent/​​351/​​bmj.h4002. Ac­cessed 5 Jun. 2017.

[9] “Select­ing in­vest­ments based on co­var­i­ance with the value of char­i­ties ….” 4 Feb. 2017, http://​​effec­tive-al­tru­ism.com/​​ea/​​16u/​​se­lect­ing_in­vest­ments_based_on_co­var­i­ance_with/​​. Ac­cessed 17 Feb. 2018.

[10] https://​​link.springer.com/​​ar­ti­cle/​​10.1007/​​s12197-017-9399-5

[11] “Taxes on Meat Could Join Car­bon and Su­gar to Help Limit Emis­sions ….” 11 Dec. 2017, http://​​www.fairr.org/​​news-item/​​taxes-meat-join-car­bon-sugar-help-limit-emis­sions/​​. Ac­cessed 17 Feb. 2018.

[12] “Strate­gic con­sid­er­a­tions about differ­ent speeds of AI take­off—Fu­ture of ….” 12 Aug. 2014, https://​​www.fhi.ox.ac.uk/​​strate­gic-con­sid­er­a­tions-about-differ­ent-speeds-of-ai-take­off/​​. Ac­cessed 8 Oct. 2017.

[13] “Can You Short the Apoca­lypse? - Marginal REVOLUTION.” 12 Aug. 2017, http://​​marginalrev­olu­tion.com/​​marginalrev­olu­tion/​​2017/​​08/​​can-short-apoc­a­lypse.html. Ac­cessed 8 Oct. 2017.

[14] “IJFS | Free Full-Text | A Study of Perfect Hedges—MDPI.” 14 Nov. 2017, http://​​www.mdpi.com/​​2227-7072/​​5/​​4/​​28. Ac­cessed 17 Feb. 2018.

[15] “End­ing fac­tory farm­ing as soon as pos­si­ble − 80,000 Hours.” 27 Sep. 2017, https://​​80000hours.org/​​2017/​​09/​​lewis-bol­lard-end-fac­tory-farm­ing/​​. Ac­cessed 17 Feb. 2018.

[16] “In­vest­ment Funds Worth Trillions Are Drop­ping Fos­sil Fuel Stocks ….” 12 Dec. 2016, https://​​www.ny­times.com/​​2016/​​12/​​12/​​sci­ence/​​in­vest­ment-funds-worth-trillions-are-drop­ping-fos­sil-fuel-stocks.html. Ac­cessed 5 Jun. 2017.

[17] “Up­date on Cause Pri­ori­ti­za­tion at Open Philan­thropy | Open ….” 26 Jan. 2018, https://​​www.open­philan­thropy.org/​​blog/​​up­date-cause-pri­ori­ti­za­tion-open-philan­thropy. Ac­cessed 17 Feb. 2018.

[18] http://​​ben­jam­in­rosshoff­man.com/​​givewell-case-study-effec­tive-al­tru­ism-2

[19] “In­ter­na­tional Mone­tary Fund—Wikipe­dia.” https://​​en.wikipe­dia.org/​​wiki/​​In­ter­na­tional_Mone­tary_Fund. Ac­cessed 8 Oct. 2017.

[20] “The IMF at a Glance.” http://​​www.imf.org/​​en/​​About/​​Fact­sheets/​​IMF-at-a-Glance. Ac­cessed 8 Oct. 2017.

[21] “Clean Tech­nol­ogy Fund | Cli­mate In­vest­ment Funds.” https://​​www.cli­matein­vest­ment­funds.org/​​fund/​​clean-tech­nol­ogy-fund. Ac­cessed 8 Oct. 2017.

[22] “Just how bad is be­ing a CEO in big to­bacco? − 80,000 Hours.” 21 Jan. 2016, https://​​80000hours.org/​​2016/​​01/​​just-how-bad-is-be­ing-a-ceo-in-big-to­bacco/​​. Ac­cessed 17 Feb. 2018.

[23] “The differ­ence be­tween true and tan­gible im­pact − 80,000 Hours.” https://​​80000hours.org/​​ar­ti­cles/​​true-vs-tan­gible-im­pact/​​. Ac­cessed 5 Jun. 2017.

[24] “Why the long-term fu­ture of hu­man­ity mat­ters more than any­thing else ….” https://​​80000hours.org/​​ar­ti­cles/​​why-the-long-run-fu­ture-mat­ters-more-than-any­thing-else-and-what-we-should-do-about-it/​​. Ac­cessed 8 Oct. 2017.

[25] “Peter Thiel Has Been Hedg­ing His Bet On Don­ald Trump—Buz­zFeed.” 7 Aug. 2017, https://​​www.buz­zfeed.com/​​ryan­mac/​​pe­ter-thiel-and-don­ald-trump. Ac­cessed 20 Aug. 2017.

[26] “Do In­vestors Put Too Much Stock in the U.S.? | Michael Dick­ens.” 26 Mar. 2017, http://​​mdick­ens.me/​​2017/​​03/​​26/​​do_in­vestors_put_too_much_stock_in_the_us/​​. Ac­cessed 8 Oct. 2017.

[27] “A two-step hy­brid in­vest­ment strat­egy for pen­sion funds—ScienceDirect.” https://​​www.sci­encedi­rect.com/​​sci­ence/​​ar­ti­cle/​​pii/​​S1062940816301887. Ac­cessed 18 Feb. 2018.

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[29] “Meet the Global Mar­ket Port­fo­lio—The ’Op­ti­mal Port­fo­lio For … - Forbes.” 30 Jul. 2014, https://​​www.forbes.com/​​sites/​​philde­muth/​​2014/​​07/​​30/​​meet-the-global-mar­ket-port­fo­lio-the-op­ti­mal-port­fo­lio-for-the-av­er­age-in­vestor/​​. Ac­cessed 17 Feb. 2018.

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